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Demand function

The following demand function demand function has been estimated for Fantasy pinball machines:

QD = 3,500 - 40P + 17.5Px + 670U + .0090A + 6,500N
where P = monthly rental price of Fantasy pinball machines
Px = monthly rental price of Old Chicago pinball machines (their largest competitor)
U = current unemployment rate in the 10 largest metropolitan areas
A = advertising expenditures for Fantasy pinball machines
N = fraction of the U.S. population between ages 10 and 30

Based on the information presented in above, what is the point cross elasticity of demand for Fantasy pinball machines with respect to Old Chicago pinball machines when P = $150, Px = $100, U = .12, A = $200,000 and N = .35?

a -0.514

b 1.028

c 0.514

d .257

Solution Preview

The following demand function has been estimated for Fantasy pinball machines:

QD = 3,500 - 40P + 17.5Px + 670U + .0090A + 6,500N
where P = monthly rental price of Fantasy pinball machines
Px = monthly rental price of Old Chicago pinball machines (their largest competitor)
U = current ...

Solution Summary

Answers a multiple choice question on demand function.

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